BSP sees no need to reduce ceiling on corporate loans, as IMF belittles impact of conglomerate debt

BSP sees no need to reduce ceiling on corporate loans, as IMF belittles impact of conglomerate debt

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MANILA — Despite an International Monetary Fund (IMF) warning of potential debt problems in a Philippine conglomerate, the Bangko Sentral ng Pilipinas (BSP) sees no need to tighten its rules on single borrowers limit (SBL), an official told InterAksyon.com.

The issue is not whether the SBL is being breached or not. The issue is whether the credit standards are being maintained, BSP Assistant Governor Johnny Noe E. Ravalo said.

The SBL is meant to minimize the risk of bank failure arising from too much exposure to any single borrower. This, along with a separate rule that limits the amount of loans or credit accommodations that banks grant to their directors, owners, shareholders and related interests, are among the safeguards the BSP put in place in the wake of the Asian financial crisis of 1997-1998.

If your measure of credit standards is that NPLs dont rise, then NPLs have been falling for 11 years. We continue to be proactive in the policy area. I think it is what it is right now, Ravalo said.

Soured loans of the country’s biggest banks plummeted to their lowest since the Asian financial crisis. Based on the latest BSP report, the NPLs of universal and commercial banks fell to 1.87 percent of their total loan portfolio at end-2012. This is lower than the preceding year’s 2.23 percent and the lowest since the 1997 Asian crisis.

Big banks’ capital adequacy ratio (CAR) stood at 17.28 percent at end-2012. When consolidated with their subsidiary banks and quasi-banks, the CAR settles at 18.35 percent.

In a report it released last April, the IMF «noted a number of global and domestic risks including the low likelihood of risk and potentially medium macro-financial impact of a highly leveraged conglomerate failure.»

The IMF noted that the loans to the conglomerate could be written down, causing a major reduction of bank capital and creating a domestic credit crunch.

The lender also raised concern about the profitability and liquidity of other conglomerates should funding costs rise.

Should the unnamed conglomerate default, the IMF recommended that the BSP order a recapitalization of banks to prevent disruptive contraction of credit, roll back banks’ SBLs, and facilitate agreements between banks and the conglomerate to ensure the problem doesn’t spill over to the entire banking system.

BSP sees no need to reduce ceiling on corporate loans, as IMF belittles impact of conglomerate debt

While the IMF didn’t identify the company, a newspaper report detailing the lender’s findings triggered a selloff in shares of San Miguel Corp and of companies it has interests in.

«Favorable economic outlook»

In a letter issued in the wake of the selloff, the IMF said the passages quoted in the newspaper article detail only one of the «many risks» the lender identified in a so-called «risk assessment matrix,» the product of discussions with Philippine government officials last January. The annual discussions are mandated by Article 4 of the IMF charter.

«The relative likelihood of risks listed is the staffs subjective assessment of the risks surrounding the baseline at the time of discussions with the authorities,» the IMF said.

Apart from the potential problem with the unnamed conglomerate, the IMF also identified the following risks: incomplete delivery of euro area policy commitments and fiscal policy shock in the US; protracted period of slow European (or global) growth; capital inflow reversal affecting emerging markets, accompanied by a strong unwinding of asset price overvaluation; and domestic asset price bubble fuelled by abundant liquidity.

«Notwithstanding these risks, the 2013 Article IV consultation staff report presents a favorable economic outlook based on the solid macroeconomic fundamentals of the Philippines,» the lender said.

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